Talent wars pose greatest risk to law firms' prospects but outlook remains 'bullish', survey finds
Leaders have definitively shifted their focus from cost cutting to standing out in a hypercompetitive market and using tech to build value
While US law firm leaders are optimistic about client demand and profits, many are showing a higher degree of concern over staffing and personnel issues as firms scramble to hire more lawyers to deal with exploding work volumes.
That is the verdict of a survey by Thomson Reuters and Georgetown Law’s Center on Ethics and the Legal Profession which polled 55 chief executive officers and chief financial officers at firms with 50 or more lawyers in August and September.
The 2021 Law Firm Business Leaders Report found that more than half of firms (51%) are now viewing acquiring and retaining talent as a high risk to future profitability. Some 31% of respondents are concerned about staff being poached by competitors, making it the second-highest area of concern for the year ahead, while associate salary increases came in a close third at 29%.
'Accordingly, the top three high-risk factors all involve talent and the rising talent wars, with significant implications for costs, turnover and firms’ abilities to have optimised, or in some cases even adequate staffing for matters,' the report noted, adding that 'today’s talent wars could also complicate firms’ plans for growth and expansion' for years to come.
A salary war over the summer saw Milbank fire the starting gun in June by reaching the landmark $200k rate for first year associates, a figure it subsequently raised to $205,000 as other firms trumped it. Next up is the Christmas bonus season, although Above the Law reported on 28 October that Paul Weiss had offered discretionary bonsues for exceptional performance as an additional reward.
Soaring pay is not confined to the US, with White & Case last week announcing pay increases in London with first year associates receiving an 8% pay hike from £130,000 to £140,000. The move placed it just behind US rival Ropes & Gray, which had announced a 13% increase in NQ pay to £147,000 the week before.
The survey indicated a notable shift in priority for firm leaders after a year when underperforming lawyers and the general volatility of the global economy were considered as the main risks to profitability.
Now, all eyes seem to be on how law firms plan to stand out in a hypercompetitive recruiting market as they grapple to keep junior lawyers happy in the face of surging work volumes, especially as demand and activity levels at the top end of the US legal services market seem to have returned to pre-pandemic levels, according to research published by Thomson Reuters earlier this year.
Nick Robbins, founder and director of legal recruiters Nicholas Scott, said: “The ability to resource transactions is clearly a major concern for law firms and their clients. I have seen leading private equity focused US law firms struggling to justify the hiring of lateral partners who cannot bring teams with them because they don’t know how they will service their work with associates and partner support, particularly when they've already had to agree with their existing teams which clients they will annoy by turning away work.”
Despite their recruitment and retention concerns, the survey showed law firm leaders remain ‘bullish’ on their firms' prospects and relatively unconcerned about the possibility of record deal activity slowing. A majority of respondents said they expect moderate to high growth in nearly every metric of profitability over the next year, including increases in demand for legal services, productivity and profits per equity partner.
One area that has undergone a change in perception for firm leaders is how they intend to leverage advanced technology going forward, with the majority of firm leaders saying they expect to use technology as a means of providing better value to clients and improving workflows for both attorneys and support staff as opposed to using technology as a cost-cutting measure.
Non-technology areas where firm leaders expect to cut costs include re-evaluating real estate use of space (82%), improving budgeting and cost management of client matters (80%), directing more work to junior staff (77%) and eliminating duplication of services (77%).
Surprisingly few respondents said they intend to leverage technology to ease the burden of their talent recruitment and retention concerns, with just 6% of firm leaders ranking attracting talent as a ‘medium priority’ when it comes to their firm’s use of advanced technology.
Robbins concluded: “In some ways lawyers are now leading the way in the global freedom of movement of highly skilled talent, particularly as legal skills become more portable as law firms' staff increasingly work from multiple offices, which in turn makes it possible to gain experience that wasn’t available before outside New York and London.”